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Strategies & Market Trends : The Covered Calls for Dummies Thread -- Ignore unavailable to you. Want to Upgrade?

To: Dr. Id who wrote (2810)	10/20/2001 11:46:58 AM
From: Dan Duchardt	Read Replies (3) \| Respond to of 5205

Dr. Id, I thought that afterhours doesn't count in terms of options (on expiration day). In other words, if you sell a 17.50 call, and the stock finishes on Options Friday at 17.49, that's it and the stock cannot be called (and if it's up after hours it doesn't matter). Is this incorrect? Afraid it is incorrect. Options (American style) may be exercised anytime prior to expiration, and expiration is on Saturday. Common folk like us who go through a broker are subject to the requirement of notifying early, usually shortly after the close on Friday, but broker dealers have the luxury of still acting on Saturday. A comment on the issue of automatic exercise: Based on my experience, and what I have been told by a couple of broker's compliance people the deal is that the Options Clearing Corporation which handles all the options clearing is the one who exercises by default any option that closes in the money by .75 or more. To prevent such exercise would require notification from the broker. Most brokers advertise this same .75 default, though they could set a different threshold. I would stay far away from any broker who does not have the .75 (or better) policy. I was told directly by someone it happened to that he had an option expire many dollars in the money, and the broker failed to exercise it. As the discussion progressed it came to appear that the broker had indeed exercised the option.. not on his behalf but for themselves!! How can this be you ask? As I understand it, the OCC does not work on behalf of individuals. They clear options broker by broker, and then it is up to the broker to assign their batch of assigned options, etc. to their clients. In other words, what comes back to the broker in a case like this is a group of auto-exercised options that the broker must properly allocate to the individuals who purchased those options. In this sad story, the broker maintained that since they had not been notified of the individuals intention to exercise they had no obligation to credit the transaction to the client. I hope this story is not accurate, but I've had enough bad experiences of my own with brokers to make it sound plausible. It can't hurt to be very explicit with your broker up front about what their policy is in regard to default exercising of any options you hold. Don't wait for something like this to find out. Dan